BCOR 340 Ch 3
Which of the following is the correct representation of the total debt ratio?
(Total Assets - Total Equity) / Total Assets
Which of the following is (are) true of financial ratios?
- Are used for comparison purposes - Are developed from a firm's financial information
Which of the following create problems with financial statement analysis?
- The firm or its competitors are global companies - The firm and its competitors operate under different regulatory environments - the firm or its competitors are conglomerates
Which of the following are traditional financial ratio categories?
- Turnover Ratios - Profitability Ratios - Financial Leverage Ratios
Which of the following would help a company take action to improve its ratios?
-Comparing to aspirant companies -Comparing to peer companies -Comparing to its own historical ratios -Comparing to major competitors
Based on the sustainable growth rate, which of the following factors affect a firm's ability to sustain growth?
-Financial policy -Dividend policy -Profit margin -Total asset turnover
AD Corporation has a return on equity of 20% on total equity of 800,000. AD generated of 1.6 million in sales on 2.7 million in assets. A DuPont decomposition of ROE shows the 20% return on equity is from a(n) ____ total asset turnover ratio.
0.59 TAT = SLS/TA
Assume current assets = $11,300; long-term liabilities = $45,000; and total debt = $54,800. What is the current ratio?
1.15 currents assets/(total debt-long-term liabilities)
Alpha Co. has interest expense of 1.2 million, total assets of 84 million, sales of 76 million, long term debt of 16.4 million, and net income of 12.1 million. How will interest expense be recorded in the common-size income statement?
1.58% 1.2/76
Vera's has earnings per share of $3 and dividends per share of $1.20. The stock sells for $30 a share. What is the PE ratio?
10 times $30 / $3 = 10 times
Better Life Inc. had net income of $375,000 on sales of $3.5 million and assets of $4.1 million this year. What is the profit margin?
10.71% Profit Margin = Net income / Sales
BC Corporation has 1,800 shares outstanding and earned $2,700 last year in assets of $2 million and equity of $1.5 million. What is the PE ratio if the stock is currently selling at $18 per share?
12 times 18(2,700/1,800) price per share/(net income/shares outstanding)
BC Corporation had sales of $1,000,000 and costs of goods sold of $450,000 for the year. Inventory at year end was $180,000. The firms Day sales in inventory is
146 inventory turnover = COGS/inventory 365/inventory turnover
The equity multiplier for a company with $2.5 million in total assets and $1.25 million in equity is ___
2.0 total assets/total equity
BK Trucking has total equity of $25,380 and 1,500 shares outstanding. Its stock is currently selling at 38 dollars per share. What is the market-to-book ratio?
2.25 38/(25,380/1,500)
A firm had operating profit (EBIT) of 300,000 on sales of 500,000. Interest expense was 125,000 and taxes were 60,000. The company has a times interst earned ratio of
2.40 300,000/125,000 EBIT/interest
AC Motors has net income of $51,750, total assets of $523,400, total debt of $267,000, and total sales of $491,300. What is the return on equity?
20.18% NI/equity equity = assets - debts
Alpha Star's net income is 300 on 2,000 of sales. The company has 5,000 in assets and equity of 3,000. The firm paid out 125 in cash dividends. What is the dividend payout ratio?
41.67% Cash dividends/net income
Better Life Corporation has sales of $500,000 on assets of $2,000,000. At year end accounts receivable were still 5% of assets. The firm's receivable turnover is ___ times.
5 2,000,000 * .05 = $100,000 (accounts receivable) 5000.000 / 100,000 = 5
AD Corporation had net income of $300,000 and aid out $125,000 in cash dividends to stockholders. The firms retention ratio is ___%
58% retention ratio = addition to retained earnings/net income = (net income - dividends) /net income
Turner's return on equity is 12 percent and its retention ratio is 60 percent. What is its sustainable growth rate?
7.76% (.12 * .60) / (1 - .12 * .60)
Alpha manufacturing has cost of good sold of $90 million and a net income of $9.6 million on total sales of $120 million. Total assets are $150 million. A common size income statement will show cost of goods sold of 75% and a net profit of __%
8
BC Corporation had net income of $3.5 million and paid out 700,000 in cash dividends to stockholders. Their retention ratio is ___%.
80 Retention ratio = (3,500,000 - 700,000) / 3,500,000
Which of the following items are used to compute the current ratio?
Cash and accounts payable
Given an internal growth rate of 3 percent, a firm can ___
Grow by 3 percent or less without any additional external financing
What will happen to the current ratio if current assets increase, while everything else remans unchanged?
It will increase
Based on the DuPont Identity, an increase in sales, all else held equal, ____ ROE
May increase or decrease May not change
Which one of the following is the correct equation for computing return on assets (ROA)?
Net Income/Total Assets
Which of the following is the correct equation for return on equity?
Net Income/Total Equity
Which of the following equations defines the total assets turnover ratio?
Sales/Total assets
What does it mean when a company reports ROA of 12%?
The company generates $12 in net income for every $100 invested in assets
What does it mean when a firm has a days sales in receivables of 45?
The firm collects its credit sales in 45 days on average
The cash ratio is found by dividing cash by:
current liabilities
The cash coverage ratio adds ___ to operating earnings (EBIT) for a better of measure of how much cash is available to meet interest obligations
depreciation
Financial statement analysis is primarily "management by ___"
exception
Long-term solvency ratios are also known as
financial leverage ratios
If sales increase while there is no change in accounts receivable, the receivables turnover ratio will
increase
Which one of the following does not affect ROE according to the DuPont identity?
investor sentiment
If a company has inventory, the quick ratio will always be ___ the current ratio
less than
Current assets on the common-size balance sheet over the past three years have increased from 32 to 35 percent while current liabilities have decreases from 29 to 25 percent. This indicates the firm has increased its
liquidity
Time-trend analysis is an example of
management by exception
Whenever ___ information is available, it should be used instead of accounting data
market
The price-earnings (PE) ratio is a ___ ratio
market value
How is the market-to-book ratio measured?
market value per share/book value per share
Which of the following items is added back to EBIT which calculating the cash coverage ratio, but not while calculating the times interest earned ratio?
non-cash expenses
One of the most important uses of financial statement information within a firm is
performance evaluation
If a company has had negative earnings for several periods they might choose to use a
price-sales ratio
The profit margin is equal to net income divided by
sales
___ financial statements provide for comparison of firms that differ in size
standardized
Which one of the following best explains why financial managers use a common-size balance sheet?
To track changes in a firm's capital structure
True or false: a way to establish a benchmark for ratio analysis is to identify a peer group
True
The quick ratio provides a more reliable measure of liquidity than the current ratio especially when the company's inventory takes _____ to sell.
a long time